Healthcare practitioners have malpractice coverage to protect them from misdiagnoses. But what about other professionals and business owners? Do they have any way to safeguard themselves from unintentional mistakes?
Yes, they do. This type of coverage is known as errors and omission (EO) insurance, and it can protect you from the financial consequences of lawsuits, professional arbitration, attorney fees, and out-of-court settlements.
But how does this insurance work? How do you obtain a policy? And how much does it cost? Let’s look at these questions.
How Do I Obtain EO Insurance?
Obtaining your EO Insurance coverage starts by talking to a qualified broker or agent. Here are some of the questions he or she is likely to ask:
- What kind of business or professional practice do you own?
- How many locations do you have – – for example, do you work from a single office, or are you in charge of multiple facilities?
- Do you have any employees? If so, how many?
- Do you use any independent contractors or other third party workers?
- What types of existing coverage do you have?
- Have you ever been sued or threatened with legal action? If so, what was the outcome?
These questions will help your insurance professional to create a coverage plan for your situation. For example, IT companies may need protection against the costs of cyber security breaches, ID theft, or website problems. On the other hand, a financial planner may need coverage in case he or she offers stock market advice that turns sour or causes a financial portfolio to lose money.
Does EO Insurance Cover Incidents That Occurred Prior to the Policy’s Effective Date?
In some cases, yes. This is known as retroactive coverage. For example, let’s say that you own a cybersecurity firm. You purchase a policy on October 1, 2023 with a retroactive clause going back to September 3, 2020.
It just so happens that one of your clients was the victim of identity theft in late 2022, and his credit suffered long-term damage as a result. He only discovered this problem when he was turned down for a mortgage in early 2023.
He may attempt to bring legal action against your company for the harm he has suffered. Because your retroactive clause precedes the date of his misfortune, your EO policy may cover the costs of either settling with the client or dealing with the matter in court.
Make sure you understand the extent and limitations of your retroactive benefits before you take out the policy. Otherwise you might find yourself without coverage just when you’re counting on it the most.
Does EO Insurance Cover Incidents That Occur after the Policy Expires?
Again, the answer is “yes” in some cases. For example, the policy may contain a clause that covers claims filed within 90 days after its expiration.
You may also have the option to purchase an extended reporting period (ERP) endorsement, which protects you for months or even years after the policy ends. This is a viable option for professionals and business owners who are retiring or closing their business and don’t want unwelcome surprises coming around to haunt them later on.
As with retroactive benefits, it’s important to understand how an ERP endorsement works before taking the coverage. A few minutes spent asking additional questions now may save you from years of worry and trouble in the future.
Is EO Insurance the Same Thing as EPLI Insurance?
No. Employee practices liability insurance (EPLI) covers adverse actions stemming from your company’s employment policies or practices. This is different from EO insurance, which is primarily meant to guard you against adverse actions brought by customers or clients.
For example, let’s say that one of your workers is injured on the job. She claims that her injury was caused by defective safety equipment issued by her supervisor. EPLI coverage can help you to prepare a legal defense, whereas EO insurance is intended for other contingencies.
How Much Does EO Insurance Cost?
Only your insurance representative can give you a dollars and cents answer to this question. However, your premiums may vary depending on these factors:
- The type of business you own — those that pose a greater liability will probably pay more for their coverage. For example, EO insurance for a dating service will probably be more expensive than a policy for a self-employed writer.
- Your business’s history – – companies that have never been subjected to legal action are likely to pay less than those with a history of expensive lawsuits.
- The number of employees you have – – large companies with many employees will probably pay more for EO insurance than smaller organizations.
Summing It All up
EO insurance is a great way to give yourself and your loved ones added security and peace of mind. Choose your policy carefully, then relax and congratulate yourself on your foresight. After all, you deserve it.